The Securities and Exchange Commission (SEC) on October 7, 2015 filed settled insider trading charges against Oscar Wu, a former portfolio manager at a New York-based investment adviser.

The SEC claims that, during the course of his employment as a portfolio manager, Wu learned material, nonpublic information about Nevada-based telecommunications company Unwired Planet, Inc., and then exploited that information to execute trades in a relative’s account and also tip a second relative who then traded based on the information.

According to the SEC’s complaint, in late 2012, Unwired Planet and Wu’s employer – an investment firm that was considering investing in Unwired Planet – entered into an agreement under which Unwired Planet would provide Wu’s employer with confidential information about the company.

Among the information Wu learned was that Unwired Planet was in the process of negotiating a revenue-sharing agreement with Sweden-based Telefonktiebolaget L M Ericsson relating to a portfolio of mobile telecommunications patents. Read More

The Securities and Exchange Commission (SEC) on October 6, 2015, charged two former top executives at OCZ Technology Group, Inc. for accounting failures at the now-bankrupt seller of computer memory storage and power supply devices.

In a complaint filed in the Northern District of California, the SEC states that OCZ’s former CEO Ryan Petersen conducted a scheme to materially increase OCZ’s earnings and gross margins from 2010 to 2012. It separately charged OCZ’s former chief financial officer Arthur Knapp for certain accounting, disclosure, and internal accounting controls failures at OCZ. Knapp agreed to settle the SEC’s charges without admitting or denying the claims against him. The SEC’s litigation against Petersen is ongoing. Read More

On September 22, 2015, the Securities and Exchange Commission (SEC) filed, under seal, fraud charges and, on September 28, obtained asset freezes against the operator of a worldwide pyramid scheme that falsely promised investors would profit from a venture supposedly backed by the company’s massive amber holdings.

The SEC claims that defendants Steve Chen, USFIA Inc. and Chen’s other entities have generated more than $32 million from investors in and outside the U.S. since at least April of 2013. The SEC’s complaint states that Chen and his companies misled investors about a profitable initial public offering for USFIA that never happened and about claims to own or control amber deposits worth billions of dollars. Read More

The Securities and Exchange Commission (SEC) announced on October 5, 2015 that on September 28, 2015, Judge Richard Story of the United States District Court for the Northern District of Georgia found James Quay guilty of criminal contempt due to Mr. Quay’s false testimony at a hearing regarding his nonpayment of disgorgement and penalties ordered by the court pursuant to a 2012 judgment.

On October 2, 2012, the SEC charged Mr. Quay, a convicted felon and disbarred attorney, with defrauding two elderly women he convinced to invest with him directly.  On October 19, 2012, Mr. Quay, without confessing to or denying the allegations of the complaint, agreed to entry of a Final Judgment that ordered him to pay about $2 million in disgorgement, prejudgment interest, and penalties.  Mr. Quay did not make any payment toward the judgment for almost three years.  The SEC then discovered that Mr. Quay had access to two trust accounts with total liquid assets in over $1.2 million.  Read More

The Securities and Exchange Commission (SEC) charged five Arizona residents with embezzlement. Allegedly, these residents stole millions of dollars from investors to make car payments, buy clothes, and fund travel and entertainment at luxury resorts, casinos, and strip clubs.

The SEC claims that Jason Mogler, James Hinkeldey, Casimer Polanchek, Brian Buckley and James Stevens embezzled roughly 97% of the $18 million they raised from 225 investors who were told the funds would be used to obtain and develop beachfront property in Mexico as well as to run recycling facilities and to buy foreclosed residential properties for resale. They repeatedly lied about the purported progress of the investments to calm worried investors as time extended past when their promissory notes should have been repaid. In certain instances they made Ponzi-like payments to investors, threatening them with lawsuits by using money from new investors, which Mogler termed “robbing Peter to pay Paul.” Read More

The Securities and Exchange Commission (SEC) announced October 1, 2015 that on September 30, 2015, the United States District Court for the District of Massachusetts issued an order setting final judgments in an enforcement action filed in December 2012 against defendants Jean-François Amyot, the operator of a pump-and-dump scheme, and Spencer Pharmaceutical Inc. (“Spencer”), a publicly-traded company with addresses in both Boston, Massachusetts, and Canada. The Court also ordered the entry of final judgments against IAB Media Inc. (“IAB Media”) and Hilbroy Advisory Inc. (“Hilbroy”), two Canadian companies controlled by Amyot. Among other things, the final judgments will order the parties to variously pay a total of $ 7,084,764 in disgorgement of illicit earnings, prejudgment interest, civil penalties, and sanctions. Read More

On December 28, 2012, the Theft of Trade Secrets Clarification Act became law.  The Act amends the Economic Espionage Act of 1996 (EEA) and expands the jurisdiction of federal courts in cases regarding the theft of trade secrets.

The EEA marked the first major federal legislation designed to grant federal courts jurisdiction over claims for misappropriation of trade secrets.  The EEA makes it possible for federal prosecutors to pursue criminal charges against those who knowingly embezzle trade secrets of U.S. businesses.  The EEA also provides for injunctive relief for stealing trade secrets in a civil action under the statute.

Before the EEA, trade secrets were protected by state laws, mostly under state-adopted versions of the Uniform Trade Secrets Act (UTSA).  Under the UTSA, federal courts had jurisdiction over trade secret theft claims by means of diversity jurisdiction or federal criminal statutes that covered trade secret misappropriation. Read More

The Securities and Exchange Commission (SEC) announced on October 1, 2015 that on September 28, 2015, the Honorable Haywood Gilliam of the United States District Court for the Northern District of California entered a final judgement against defendants Ranjan Mendonsa and Ammar Akbari. Mendonsa, Akbari, and two other defendents were charged with insider trading in Ross Stores securities. Information regarding the store’s securities was leaked by one of the retailer’s employees.

In the SEC’s complaint, it claims that defendant Saleem Khan was regularly tipped by his friend Roshanlal Chaganlal, a director in the finance department at Ross headquarters in Dublin, California. Khan supposedly used the confidential information to illegally trade ahead of the company’s public release of sales results. Khan also allegedly tipped his work colleagues, Mendonsa and Akbari, so they too could trade in Ross securities. The complaint further states that between August 2009 and December 2012, the insider trading ring spearheaded by Khan collected millions of dollars in illicit earnings. Read More

Our readers have spoken.  Securities Lawyer 101 written by Brenda Hamilton, a securities and going public attorney has won third place in overall winners in The Expert Institute’s Best Legal Blog Competition. From a field of more than 2,000 legal blog nominees, Securities Lawyer 101  received third place in one of the largest competitions for legal blog writing online today.

“We are proud to be recognized by The Expert Institute for our Securities Law & Going Public Blog, and are grateful to our readers for helping us get this far. Thank you for taking time out of your busy schedule to recognize our blog” stated Ms. Hamilton.  Securities Lawyer 101 focuses on corporate finance and securities law covering such topics as SEC Enforcement, White Collar Crime, Regulation A+, Form S-1 & Form 10 Registration Statements, Rule 506, and going public transactions. The blog  can be viewed at www.securitieslawyer101.com/blog Read More

The Securities and Exchange Commission (SEC) announced that it charged two former executives of ContinuityX Solutions, Inc. with fabricating nearly all of the company’s revenue and enriching themselves in the process. Metamora, Illinois-based ContinuityX was a publicly traded company that claimed to sell Internet services to businesses. The company is now in bankruptcy and its former CEO was criminally charged last year with six counts of wire fraud for conduct related to the SEC’s allegations.

The SEC’s complaint, filed in federal court in Illinois, charges ContinuityX’s former CEO David Godwin and former chief financial officer Anthony Roth with engineering a scheme to inflate the company’s revenues. ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but the complaint alleges that 99 percent of it came from fraudulent and fictitious sales. The complaint also states that Godwin and Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities. Read More

On September 29, 2015, the Securities and Exchange Commission (SEC) charged a company and its manager with securities fraud of their investors by promising them outlandish “low risk” investment returns and then misusing the investors’ money to, among other things, pay for personal living expenses and engage in risky, undisclosed futures trading.

The SEC’s securities fraud complaint claims that Charles Riel and REinvest LLC raised over $280,000 from at least five investors by implying to sell them securities in REinvest. In the complaint about Riel’s securities fraud, the SEC alleges that although Riel told investors that REinvest was going to invest their money in high yield financial growth vehicles that would create returns as high as 150% over five years, Riel simply stole most of the money by using it to make payments on a mortgage, taxes, and utility and cable bills, and to make cash and debit card withdrawals and charitable donations. Read More

The Securities and Exchange Commission (SEC) announced on September 29, 2015 fraud charges against a registered investment adviser and its owner for allegedly participating in self-dealing and failing to communicate material facts to clients about conflicts of interest, use of investor funds, and the risks of the investments they suggested.

In a complaint filed in U.S. District Court for the District of Massachusetts, the SEC claims that Family Endowment Partners LP and its owner, Lee Dana Weiss, of Newton, Massachusetts, strongly urged their clients to invest more than $40 million in illiquid securities distributed by several related companies without revealing that Weiss had an ownership interest in the parent company of these entities and collected payments from these entities. Read More

On September 29, 2015, the Securities and Exchange Commission (SEC) charged Jose Ramirez, a former top broker at UBS Financial Services Incorporated of Puerto Rico (“UBSPR”), who made material misrepresentations and omissions and conducted a fraudulent scheme that involved the use of credit line proceeds from a UBSPR-affiliated bank to buy shares in UBSPR affiliated closed-end mutual funds.

The complaint filed in federal court in Puerto Rico against Jose Ramirez, a previous registered representative in UBSPR’s Guaynabo branch office alleges that Ramirez increased his compensation by at least $2.8 million by having certain customers use proceeds from lines of credit with UBS Bank USA to purchase additional shares in UBSPR closed-end mutual funds. To avoid exposure, Ramirez allegedly told the customers to transfer money from their line of credit to an outside bank account before depositing the funds into their UBSPR brokerage account and buying the closed-end funds. The funds invested substantially in Puerto Rico municipal bonds and lost value as the Puerto Rico bond market receded, requiring the customers to pay down a portion of the loans or risk having their investments liquidated. Read More

Halts Before Open

Under the amended NYSE Listed Company Manual, between 7:00 a.m. and the opening of trading, the NYSE can implement a regulatory halt if (i) the listed company has informed the NYSE staff that it intends to make a public announcement of material news, and (ii) the listed issuer requests that trading in its listed securities be halted pending dissemination of the public announcement.

Halts During Trading Hours

Under amended Rule 202.06, if it is necessary to request information from a NYSE issuer relating to (i) material news, (ii) the listed company’s compliance with Exchange continued listing requirements, or (iii) any other information which is necessary to protect investors and the public interest, the NYSE can halt trading of the listed company’s security until it has evaluated the requested information. Read More

The Securities and Exchange Commission (SEC) on September 28, 2015 charged five Florida residents, including a lawyer and an accountant with insider trading before the acquisition of Pharmasset Inc. by Gilead Sciences Inc.

The SEC filed a complaint claiming that attorneys Robert Spallina and Donald Tescher and accountant Steven Rosen illegally traded private information acquired from a mutual client who served on the board of directors of a company named Pharmasset.

According to the insider trading complaint, on November 8, 2011 during a meeting regarding year-end personal tax and estate planning, the Pharmasset board member and his advisers, including Spallina, Tescher, and Rosen, discussed the fact that the Pharmasset board was trying to reach an agreement to sell the company at a significant premium. Right after this meeting, Spallina, Tescher, and Rosen supposedly breached their duties of trust and confidence to their client by buying Pharmasset securities. Read More

The Securities and Exchange Commission (SEC) announced on September 2, 2015 that an alleged investment club fraudster whose assets were frozen in an SEC enforcement action earlier this year has now been criminally charged by a grand jury for lying and the obstruction of justice in an ongoing SEC investigation.

In a complaint filed in federal court in Utah in February, the SEC claims that Roger Bliss, of Bountiful, Utah, manned an investment club that inaccurately guaranteed returns in excess of 100% by day-trading Apple stock. In actuality, Bliss lost more than $3 million day-trading and was unable to use all of the investor capital for his stated purpose of day-trading.  The SEC requested that the court impose an asset freeze against Bliss, and the Court consented.

The SEC then discovered that Bliss covered up his ownership of a catamaran sailboat and secretly transferred possession to his brother-in-law, Kevin Fortney.  Read More

On May 5, 2010, the U.S. Securities and Exchange Commission (“SEC”) brought an action against Spongetech Delivery Systems, Inc. (“SPNG”), including CEO Michael Metter, CFO and secretary Steven Moskowitz, and certain other Spongetech officers and employees, for engaging in a scheme to increase demand for publicly traded stock in Spongetech by using false public statements to heighten awareness of the stock and company, and selling the artificially inflated shares through affiliated entities in unregistered securities transactions. These affiliated entities include RM Enterprises International, Inc., the majority shareholder of Spongetech.  RM Enterprises was controlled by Metter and Moskowitz.

Spongetech was what’s known in Pennyland as a “story stock.”  In 2008 and 2009 it was one of the most heavily touted OTC stocks, attracting thousands of investors ready to defend it at all costs.  The company’s fans pointed proudly to the fact that SPNG, unlike many penny issuers, had a product—soap-filled sponges—that could be purchased at some convenience stores and major retailers. Read More

The Securities and Exchange Commission (SEC) announced on September 28, 2015 that Trinity Capital Corporation and its wholly-owned subsidiary, Los Alamos National Bank, have agreed to pay $1.5 million to settle accounting fraud charges.

An SEC investigation found that Trinity materially misstated its provision for loan losses and its allowance for loan and lease losses in its quarterly and annual filings with the SEC during 2010, 2011, and the first two quarters of 2012. Specifically, Trinity understated its reported 2011 net loss available to common shareholders by $30.5 million, reporting income of $4.9 million instead of a $25.6 million loss.

Five current or former executives also are charged in the case that involves fraudulent manipulation of the company’s financial results and failure to implement sufficient internal accounting controls over loan accounting. Read More

The Securities and Exchange Commission (SEC) announced on October 1, 2015 fraud charges against an Orange County, Calif. oil and gas company, its CEO, and an Arizona-based boiler room operator. The SEC claims Commodore Financial Corporation, CEO Christopher Schlegel, M&G Cap Services, and Andres Calvo raised approximately $7.5 million from at least 84 investors through their fraudulent offer and sale of fractional interests in oil and gas wells. In the SEC’s complaint, filed on September 30, 2015 in the U.S. District Court for the Central District of California, Commodore and Schlegel allegedly engaged in a scheme to defraud investors by embezzling almost half of investor capital to pay exorbitant commissions to Calvo and his boiler room operation as well as for Schlegel’s own personal use, which included private jet charters and Las Vegas casino expenses. Read More

-Posted by Brenda Hamilton-

The Securities and Exchange Commission (SEC) announced on September 2, 2015 that U.S. District Court Judge Jed S. Rakoff has ordered that Defendants Eric Aronson, Fredric Aaron, and Vincent Buonauro must each disgorge all money received from the Ponzi Scheme and pay substantial civil penalties for their involvement in a Ponzi Scheme.

The SEC’s Complaint, filed in October 2011, stated that from 2006 to 2010, PermaPave Industries and its affiliates raised more than $26 million from the sale of promissory notes and “use of funds” agreements to over 140 investors. Eric Aronson, Vincent Buonauro, and others told investors that there was a huge demand for the product – permeable paving stones – and that investors would be repaid from the profits made by guaranteed product sales. However, there was actually little demand for the product, and defendants used their investors’ money to make “interest” and “profit” payments to previous investors and to finance management’s lavish lifestyles. Furthermore, shortly after an affiliate of PermaPave Industries obtained a majority stake in Interlink-US-Network, Ltd., Eric Aronson, Fredric Aaron, (the attorney for Eric Aronson) and the entity defendants and also an officer and director for several of the entity defendants – and others issued a press release stating that a company that had never heard of Interlink intended to invest $6 million in Interlink. Read More

The Securities and Exchange Commission (SEC) on September 22, 1015, filed fraud charges against Eldrick Woodley, a Houston-based investment advisor, for the embezzlement of more than $147,000 in client capital.

According to the SEC’s complaint, filed in the U.S. District Court for the Southern District of Texas, Houston Division, Woodley, doing business as the advisory firm Woodley & Co. Wealth Strategies, undertook a fraudulent scheme to steal money from his advisory clients. The SEC claims that to perpetrate his scheme, Woodley submitted a series of fraudulent fee invoices to the custodian of his clients’ accounts to collect funds from various clients, allegedly as indemnity for services that Woodley implemented and investments he made on his clients’ behalf. Read More

The Securities and Exchange Commission (SEC) on September 28, 2015 charged Tokyo-based conglomerate Hitachi, Ltd. with violating the Foreign Corrupt Practices Act (FCPA) when it falsified documents regarding payments to South Africa’s ruling political party connected with contracts to construct two multi-billion dollar power plants.

Hitachi has agreed to pay $19 million to settle the SEC charges.

The SEC alleges that Hitachi sold a 25% stake in a South African subsidiary to a company serving as a front for the African National Congress (ANC). This arrangement gave the front company and the ANC the ability to share in the profits from any power station contracts that Hitachi secured. Hitachi was ultimately awarded two contracts to build power stations in South Africa and paid the ANC’s front company approximately $5 million in “dividends” based on profits derived from the contracts. Through a separate, undisclosed arrangement, Hitachi paid the front company an additional $1 million in “success fees” that were inaccurately booked as consulting fees without appropriate documentation. Read More

The Securities and Exchange Commission (SEC) announced on September 25, 2015 that on September 24, 2015, a jury in federal district court in Chicago, Illinois, returned a verdict finding Ralph J. Pirtle and Morando Berrettini responsible for insider trading in the stocks of three companies: Lifeline Systems, Inc., Invacare, Inc., and Intermagnetics Corporation.

The SEC’s first amended complaint, which was filed in March 2010, alleged that Pirtle, the former Director of Real Estate for a subsidiary of Royal Philips, NV, (“Philips”), tipped his friend and business associate, Morando Berrettini, about Philips’ plans to acquire the three separate companies in late 2005 and early 2006. On each occasion, following the tip, Berrettini purchased shares in the companies. According to the SEC’s complaint, Berrettini made profits of approximately $240,000 on his trades. Read More

The Securities and Exchange Commission (SEC) filed a civil injunctive action on September 25, 2015, in the United States District Court for the District of Colorado relating to the fraudulent offer and sale of stock in GenAudio, Inc. The SEC charged GenAudio, Inc. (“GenAudio”), a Colorado corporation, its corporate successor in interest, Astound Holdings, Inc. (“Astound”), a Delaware corporation, and GenAudio’s founder and chief executive officer, Taj Jerry Mahabub, a resident of Broomfield, Colorado, with the fraudulent and unregistered offer and sale of more than $6.8 million in GenAudio stock.

According to the SEC’s complaint, from approximately March 2010 through April 2012, GenAudio raised more than $4.5 million in two private placements of its common stock based in large part on representations that Apple, Inc. (“Apple”) planned to acquire GenAudio or enter into lucrative licensing agreements to incorporate its technology across Apple’s products worldwide.
The SEC’s complaint alleges that GenAudio and Mahabub told prospective investors that Apple’s senior management advocated acquiring GenAudio’s technology, and that a third party had valued GenAudio’s technology at more than $1 billion. However, according to the SEC allegations, GenAudio had only demonstrated its technology and had technical discussions with mid-level Apple personnel, none of whom had indicated that Apple was interested in a transaction with GenAudio. The SEC further claims that during the scheme, Mahabub falsified documents and pocketed more than $2.3 million through his offer and sale of his personal stock in GenAudio. Read More

On September 24, 2015 the Securities and Exchange Commission (SEC) charged six men, including a father and three sons, with securities fraud associated with Gerova Financial Group Ltd., whose shares once traded on the New York Stock Exchange. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against the six regarding the fraud. Those charged are Jason Galanis, his father John Galanis, brothers Derek Galanis and Jared Galanis, along with Gerova president and chairman Gary Hirst and investment adviser Gavin Hamels. Jason Galanis is a securities fraud recidivist who was charged by the SEC in 2007 and his father, John Galanis, has been a defendant in several SEC enforcement actions dating back to the early 1970s, including actions that involved securities fraud.

The SEC complaint alleges that in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. According to the complaint, Jason Galanis, his father, and his brothers directed sales of the shares from the Kosovo friend’s brokerage accounts and had the proceeds wired to them and their associates who collectively realized at least $16 million in illicit earnings. Read More

On October 1, 2015, the Securities and Exchange Commission (“SEC”) announced it had frozen the assets and filed fraud charges against the operator of a worldwide pyramid scheme who falsely promised investors that they would profit from a venture allegedly backed by the company’s enormous amber holdings.

The SEC’s complaint stated that California resident Steve Chen and 13 California-based entities, including USFIA Inc. (“USFIA”), are at the center of the purported scheme. According to the complaint, since at least April 2013, USFIA and Chen’s other entities have raised more than $32 million from investors in and outside the United States. Allegedly, Chen and his companies misled investors about claims to own or control amber deposits worth billions of dollars in a lucrative initial public offering for USFIA that never happened.

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The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled Halcyon Cabot Partners, Ltd., and barred Chief Executive Officer Michael Morris and Chief Compliance Officer Ronald Heineman from the securities industry, for securities fraud, sales practice abuses, and widespread supervisory and anti-money laundering failures. FINRA found that Halcyon, Morris and Heineman engaged in a scheme to conceal a kickback of private placement fees.

FINRA’s investigation found that Halcyon, Morris and Heineman, along with a previously barred registered representative, Craig Josephberg, agreed to conceal the discount the issuer provided to a venture capital firm when it purchased a private placement in a cancer drug development company. The scheme was effected through a bogus placement fee agreement that was entered into after the venture capital firm had already agreed to purchase the entirety of the offerings. Halcyon did not perform any work, as there was already a buyer in place, but rather returned almost all of its $1.75 million placement fee to the investor through sham consulting agreements. This fraudulent scheme allowed the drug company to conceal that it was selling its shares at a discount. Read More

On September 8, 2015, Judge Alvin Thompson of the U.S. District Court for the District of Connecticut entered a judgment against Joseph Apuzzo, former Chief Financial Officer of Terex Corporation. Apuzzo consented, without admitting or denying the allegations in the SEC’s complaint, to be permanently enjoined from violation of Sections 10(b) and 13(b)(5) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rule 13a-1 thereunder, and to pay a penalty of $100,000.

Upon motion by the SEC, Judge Thompson will determine whether to impose an officer and director bar against Apuzzo. Apuzzo, who was a Certified Public Accountant at the time of the alleged fraudulent conduct, has further agreed to the entry of an SEC order suspending him from appearing as an accountant before the SEC, with a right to apply for reinstatement after five years. The SEC issued such an Order on September 16, 2015. Read More

On Thursday, September 3, 2015, United States District Court Judge Denis R. Hurley of the United States District Court for the Eastern District of New York issued an order and judgment imposing relief against Defendant Anthony Knight, the former Chairman of failed Long Island-based internet startup, iShopNoMarkup.com, Inc.

Judge Hurley ordered Knight to pay $2.3 million in disgorgement, over $2.5 million of prejudgment interest, and a $330,000 civil penalty.  Read More